FRANKFORT — The Kentucky Senate passed its version of the biennial budget on a 27-2 vote on Wednesday, restoring most spending cuts proposed by Gov. Matt Bevin and investing heavily in the state’s underfunded public pension systems.

Wednesday’s vote on House Bill 303, which saw nine Democrats voting “pass,” will allow House and Senate leaders to try and cobble together a compromise spending plan in a conference committee ahead of a veto recess scheduled to begin next week.

Senators resuscitated Bevin’s proposed “permanent fund” to help the state make future pension contributions and his call for a workforce development bond pool, although both are half as much as Bevin originally suggested.

The Senate diverts $250 million of a $500 million transfer from the state employees’ health insurance trust fund to the permanent account and creates a $50 million bond pool in its version of the two-year spending proposal in HB 303. Senate President Robert Stivers said the chamber’s revenue bill will codify language for the permanent fund.

The state’s budget reserves would total $371.5 million under the Senate budget — more than the House’s estimated $283 million balance and less than Bevin’s projected $523.8 million rainy day fund by the biennium’s end.

HB 303 would also pump an extra $282.4 million into the Kentucky Employees Retirement System for most state employees, which is less than 18 percent funded; an additional $913.3 million into the Kentucky Teachers’ Retirement System, which faces $24.4 billion in unfunded liabilities under federal accounting standards for pension plans without long-term funding prospects; and $25 million more for the State Police Retirement System.

“This budget today, this Senate budget does address the pension problems and makes a step forward to solving that issue,” said Senate Majority Whip Jimmy Higdon, R-Lebanon. “Not overnight. We didn’t get into this situation overnight, but we start down that road to solve our pension problems.”

The upper chamber’s version of the budget does not include 4.5 percent spending cuts in the current fiscal year for many state agencies as Bevin proposed, but Sen. Chris McDaniel, chairman of the Senate Appropriations and Revenue Committee, said the first-year governor has discretion on how much his agencies spend, describing the budget as more of a cap on spending.

“As a result of the silence, the savings do apply to the budget reserve trust fund,” McDaniel, R-Taylor Mill, told reporters after his budget committee passed HB 303 to the Senate floor Wednesday. “There are no mandated cuts in the current fiscal year in this budget.”

McDaniel said both the Senate and House restored cuts in the Department of Veterans Affairs — an agency that Bevin intended to shield from spending reductions — and to the number of veterinary school slots funded through the Council on Postsecondary Education. The Senate restored some funding for family resource and youth service centers, but not at the House’s level.

Areas that had been spared in the House budget, like higher education, constitutional officers and the Executive Branch Ethics Commission, will see 9 percent cuts in the Senate plan, although McDaniel said the ethics panel would ultimately see its funding levels remain the same if a proposal to raise registration fees on lobbyists from $125 to $500 in the Senate’s version of the revenue bill, House Bill 423.

The House’s proposal to lift restrictions on postsecondary bonding projects did not make the Senate’s budget, nor did the chamber’s $33 million Work Ready Kentucky scholarship program, which would have provided free admission to Kentucky Community and Technical College System campuses for students straight out of high school if they maintain a 2.0 grade-point average.

HB 303 includes a recommendation to issue 25 percent of higher education funding on a performance-based model for most universities in fiscal year 2018. The Senate also restored $7.9 million to fill funding disparities at Northern Kentucky University and Western Kentucky University and $1.1 million to increase Kentucky State University’s federal land grant match total in HB 303, which also requires a four-year improvement plan from the school and exempts it from the performance-based funding pool.

Bevin praised the Senate for sending “a fiscally responsible budget that is structurally balanced” to the House.

“It restores our permanent fund and also addresses our longterm pension liabilities,” Bevin said in a statement. “I appreciate the overwhelming majority of senators who voted to tackle our current financial obligations and stop kicking the can down the road.”

A $60 million bonded project to renovate and expand the Lexington Convention Center was a late casualty in the Senate budget, cut from the plan on a 21-16 floor vote on a committee amendment following a last-minute appropriations and revenue committee meeting before Wednesday’s vote.

McDaniel said the convention center renovation, part of Bevin’s and the House’s budgets, was left in the Senate’s spending proposal because of a drafting error.

A 2.5-cent increase in Lexington’s 6-cent hotel room tax has been recommended to help finance the $250 million overall project through House Bill 441, which passed the House on a 77-13 vote March 3.

Republicans and Democrats representing Fayette County vehemently objected to the convention center’s omission in HB 303 and said the hotel tax increase would keep the city competitive with other nearby locales like Louisville, Indianapolis and Knoxville.

“More than 75 percent of the project would be funded locally up front, and eventually it will all be funded locally because of this unprecedented plan of repayment,” said Sen. Alice Forgy Kerr, R-Lexington.

But Stivers, R-Manchester, suggested the Lexington-Fayette Urban County Government could have applied excess revenues toward a Lexington Convention Center expansion. He estimated that $35 million to $40 million in such revenues had been used for other projects in recent budgets, including $12 million to renovate the former Fayette County courthouse this year.

The city, which is hoping to receive federal and state historic tax credits in the project, is renovating the former courthouse and museum space in hopes of attracting a tenant to the downtown building, according to a report by the Lexington Herald-Leader.

“I’m not in any way opposed to the (Lexington Convention Center) project, but truly if the individuals need the money, I think something can be worked out,” Stivers said. “But tell me when I have added these totals up why they need that money.”

The Senate cut a $3.6 million fund in Attorney General Andy Beshear’s office, proposed by the House through a $15.5 million settlement with Johnson & Johnson, to aid the prosecution of rape and sexual assault cases. HB 303 now calls for the Kentucky State Police to receive the bulk of those settlement dollars, $7 million, to help reduce the backlog of untested sexual assault kits at KSP crime labs.

Beshear said in a statement that the Senate’s two-year spending proposal “is not in line with Kentucky values and would harm Kentucky families.”

The Senate also nixed $8 million the House had appropriated for various addiction treatment services from a $24 million settlement with OxyContin-maker Purdue Pharma, instead diverting $8 million to the KTRS Medical Insurance Fund for the system’s unfunded pension liabilities.

That move, however, seems to run counter to a court order in the settlement mandating that any funds aside from attorneys’ fees and legal expenses be used “for the use of public health initiatives, educational or public safety campaigns, reimbursement or financing of health care services and infrastructure related to addiction prevention and treatment.”

Sen. Denise Harper Angel, D-Louisville, bemoaned the loss of $3 million for Court Appointed Special Advocate programs, bonded renovation projects for the Kentucky Schools for the Blind, and $1 million for breast and cervical cancer screenings in the Senate’s biennial budget, among other items.

“I believe these cuts will adversely women, children, families and the disabled,” she said.

Stivers said he didn’t see much tension on the horizon between the Senate and House during budget negotiations, but the gulf between the two sides can be measured in miles, House Speaker Greg Stumbo said Wednesday.

“I think it’s going to be a clash of different ways that we approach these problems that we have in Kentucky, and the House budget that we passed out of here is, in my judgment, significantly better,” said Stumbo, D-Prestonsburg.

“I was hoping the Senate would put their own thought into this and not just rubber-stamp what the governor wanted,” he added.

Stivers said he hoped to have a conference committee ready to meet by Thursday, with an absolute deadline of next Wednesday. That would give the General Assembly a day to consider overriding any vetoes issued by Bevin.

“We plan to go with the difference documents so we can have that public explanation to your all’s listeners, readers and viewing audience, and then we hope at some point in time to start some real discussions after that as to when we can sit down and have some closed-door negotiations,” he said.

Pure Politics reporter Don Weber contributed to this report.

Kevin Wheatley

Kevin Wheatley is a Video Journalist for Spectrum News and covers Kentucky politics and all the goings-on at the State Capitol. Kevin was born and raised in Frankfort so he grew up around politics and has always had the drive to follow the political process and hold lawmakers accountable. Before joining Spectrum News Kevin covered government and politics for The State Journal in Frankfort. You can watch Kevin’s work weeknights at 7:00 and 11:30 on Pure Politics, available exclusively on Spectrum News, HD Channels 403 and 715. You can reach him at kevin.wheatley@charter.com or 502-792-1135.